Friday, May 23, 2008

Carbon Tax

I just got into Calgary - here for the next few days and likely won't have much time to blog so I'm tossing out an open thread, on the topic of the Liberals possibly promising a carbon tax during the next campaign.

47 Comments:

My take is that any chance of Dion launching a coherent policy on carbon taxation has been blown already. He should have had a better roll-out-plan than "I'll be using the summer to sell a plan I have yet to release".

Again, I keep wondering who Dion employs in his inner circle that handles all of these initiatives. They should be fired.

I think that some of you liberals aren't giving Dion enough credit, as nice a man as he is, as passionate for the environment as he is.........................these decisions are probably coming from people around him. I suspect Dion is a naive man, who would tend to trust people (he is really kind and positive, sweet), that may be his biggest weakness. I would rather not mention names, let's just say they don't rhyme with Rae..........how's that to jog your imaginations?

As much as I despise Rae, he does seem more winnable because he does seem like more of a Jerk. Ignatieff isn't really a Jerk, but he has more of a diplomatic attitude which is really likeable I think.

"debating a ghost" is perfect. all flash and no sizzle is typical and even when pre-election rhetoric comes with substance there is little chance that any of the political parties are actually going to implement any of their promises. i am so tired of the blah, blah, blah

What have we to lose? Are Liberals going to win back government except for the fact we promote a carbon "shift"? No.Predicated on the assumption that anthropological global warming concerns will not take a dive given strong evidence to the contrary and the well documented cooling trends.

We certainly don't need a carbon tax to fight the chimera of global warming.Rajendra Pachauri, the director of the U.N. Intergovernmental Panel on Climate Change has had to, very reluctantly, concede that the earth has been cooling since 1998. In 2007 the average temperature dropped .7 degrees C. That is the largest drop since data on this topic has been collected.Noel Keenlyside, team leader on environmental studies for the Max Planck Institute, and a staunch promoter of the earth is doomed theory, has admitted that when the latest oceanographic data is plugged into the U.N. climate supercomputer the model predicts the planet will continue to cool until at least 2015.If Mr. Dion wants to slap another tax on the public he had better find a better excuse than global warming. Being a Liberal, I am sure he has dozens of other reasons why we have to raise taxes.

Dan McTeague continues to be cited as Chief Liberal in favour of lower gasoline taxes, and Dion is promising that Liberals will raise gasoline taxes, even if he won't say how much or when (and also try to increase the inflation rate in Canada, I guess).

This is good long-term politics, bad short-term politics and good and bad policy.

Which people are most hit by a carbon tax? Those workers (and CEO's) in carbon-intensive industries - manufacturing industries. Those are precisely the jobs that are going by the wayside. In a 50 year time-line it is hard to imagine that Canada will still be manufacturing many of its own goods, unless there is an [economically unwise] protectionist backlash. Biotech, IT, and aerospace (which I guess is somewhat carbon-intensive, but not on a per-dollar of value added basis) is where Canada's growth in the future is going to come from. With an emerging cleavage of interests between high tech and low tech workers, it is ALWAYS good politics to plant your flag on the side that will inevitably win.

This is good policy because it forces the marketplace to treat carbon emissions as an input, just as paper mills treat pulp. It strongly incentivizes pollution reduction, while not overly burdening the leading high tech sectors of the Canadian economy.

This is bad policy because it exacerbates a 20-year trend of stagnant wages among the less well-off median worker, and highlights a cleavage that has national unity implications. Canada has historically been divided in two principal ways: English and French; and within that, there was a protectionist and a free-trading coalition of economic interests (historically Toronto, the Maritimes, and urban Quebec were in the first group, the west and the rest of Ontario was in the second). The latter has largely subsided, but still sees the light of day in the form of things like nascent anti-Americanism that prevails in some parts of the country. Since the passage of free trade, this cleavage has largely ceased to be an issue - in part because the losers of free trade... lost (in part because free trade did not have the adverse effects advertised by some).

Dion's political entrepreneurship in introducing a carbon tax to the policy table finds another policy that divides Canadians economically. It provides little or no compensating mechanisms to alleviate the losers of a green economy, and given that welfare is a provincial jurisdiction, and Dion has a penchant for centralization, it is hard to see where Dion has sought to ameliorate the ill effects of his policy for some Canadians.

Environmentalism largely reflects cultural attitudes as much as it does genuine concern for the planet (yes most scientists believe in global warming - but most of us, including myself, that think global warming is happening, do not have a good grasp of the scientific debate). I think it is fair to say that a lot of upper middle class folks have been socialized to believe in environmentalism (rather than to accept it as a rational goal). The politics of environmentalism - at least those put forth by Dion (as opposed to the NDP, which schizophrenically likes auto workers and the environment) - are identity politics.

Can these sorts of divisions be harmful? Certainly. The progressive party was a radical reaction of westerners against a decade of protectionism, centralizing politics under Borden. The Reform Party was born out of a similar animosity for policies that they saw as favouring central Canada. Disunity is always a bad thing in a country cobbled together like Canada - even if nobody is discussing secession.

What do the fault-lines look like - if a green-brown divide is to accentuate Canada's existing divides? Well firstly, they look bad for Dion's 2009 chances. Southern Ontario is where governments are born. I think there are a lot of industrial votes both there, and in the Montreal suburbs that will not appreciate this policy. Likewise, oil-rich Newfoundland and Alberta might similarly chafe. Finally the carbon-intensive resource extraction industries like pulp and paper, but also mining are going to be none-too-pleased by this kind of policy.

On the other hand, it will be great for finance, great for high tech industries, and also good for farming. So the green-brown fault-lines probably accentuate the city-country divides in Canada.

"Which people are most hit by a carbon tax? Those workers (and CEO's) in carbon-intensive industries - manufacturing industries."

I'm not sure I completely agree - in any functioning industry, costs are passed on to consumers in the price of goods. Which means transportation costs would go up for food, clothing, and so on, hitting all consumers in line with the percentage of income those goods represent.

"it is hard to imagine that Canada will still be manufacturing many of its own goods"

Where will such manufacturing be done? Unless it is moved to more environmentally advanced plants, any carbon tax policy driving manufacturing away will have caused net harm to the environment. That North American manufacturing has largely moved to China contributes significantly to environmental degradation as China's carbon emissions grow.

I don't think Warren Kinsella is infallible but he clearly thinks this is bad strategy and he's made out a good case why this is so, Timing etc...

The Conservatives have been carpet-bombing this initiative round the clock and it's probably dead in the water in any case.

People are worried about the economy now anyways - the planet, after the winter we've all endured, not so much.

The Dion braintrust should put the little green towels away and put together a comprehensive policy plan on all fronts instead. Saving the planet or solving child poverty are laudable goals but they're not election platforms.

Dion may not know this but the guy he put in charge of policy, Bob Rae, surely knows better.

Firstly, costs are passed onto consumers DEPENDING UPON PRICE ELASTICITY of a good. If there are many alternatives to the good, a rise in the cost of production will mostly be bourne by the producer (or the worker in the form of wage cuts), who cannot raise prices without suffering a collapse in sales. What is a good example of such a good? Well, cars for one.

Secondly, even IF the cost is passed on to the consumer, what do you think will happen? Consumers will, well, consume less. In that instance, Ford Canada doesn't have to make so many cars, and guess what happens to auto workers, etc.?

"Industry moving to China degrades the environment"

Yes! And that is precisely why killing our domestic manufacturing industries is bad for the environment. However, it is also why this is cynically good politics. Simple economics is part of what is driving those jobs away - China is becoming more competitive in manufacturing, while we are not. Some of the job losses in Southern Ontario are due to the slowdown (it is not a recession), but the broader trend over the last 10-15 years of deindustrialization has been common to just about every single advanced economy in the world.

A carbon tax is good politics because it can galvanize the people in industries that are likely to grow and employ more people. That gets accelerated if you implement a carbon tax too - the losers (carbon-intensive industries) lose their jobs and get new ones eventually, thus losing the incentive to oppose the policy. It worked the same for both free trade and the national policy - both created losers, but galvanized a new majority because the losers had to find new jobs under the new economic paradigm (plus the economically disposessed are a crappy core constituency - just ask the NDP or John Edwards).

What is more, the Tories have taken the dumbest possible line in attacking the green tax shift - calling it a tax grab. Yeah, people don't like taxes, but they can accept them if there is an environmental payoff. Making it about taxes is inaccurate (I think voters can figure it out) because it is revenue-neutral, and reinforces the notion that this is a left-right thing (Dion's strategy is partly to galvanize the left behind him - including the Greens, but also the NDP who will have trouble either opposing or supporting this policy because they are beholden to both the granola crowd and the metal lunchbox crowd).

Harper should focus on why it won't work (defusing the left alliance Dion is seeking to build), and focusing on who will be heart by the tax.

Where we seem to disagree is in our respective interpretations of the elasticity of demand of carbon-intensive products.

The price of gasoline for our cars, oil and natural gas to heat our homes, electricity to cool our homes in the summer, have all increased significantly over the past few years. These price increases have been borne by every business and the costs have been passed along to consumers in the form of higher prices of goods, including food.

The numbers don't show people driving half as much, or eating and drinking less, because of these price increases. People talk about traveling less, but airports are still recording growing numbers of travelers.

The PED of demand of carbon has proven to be relatively inelastic. Instead, what we see is overall inflation on the rise, and higher gasoline prices being reflected in goods and services all across our economy.

Paul, you are right about the price elasticity of carbon/gas (and food - they are both relatively inelastic), but not necessarily about the goods it is used to produce.

If carbon is an input for say, the auto industry, then certainly the base cost of producing a car goes up. However, cars are a product that have many alternatives: you can buy used cars, you can use public transit, you can walk - or you can continue using an existing older car. So car prices are not likely to rise, even though the cost of producing cars is higher. Rather, you will see the crunch in wages and profits (which are negative for the big three).

Luxury goods, in general, are more elastic - more sensitive to changes in price - so they are likely to remain cheap.

Food, gas itself and say cocaine are more likely to increase in price, because they are less elastic - we all need to eat, most of us need to drive, and not using cocaine is hard in the near-term (I actually don't think cocaine is all that carbon intensive, I was just using it as an example - I do think that higher food prices are likely to encourage Colombian peasants to switch to farming produce rather than drugs though).

Of course, in the long run that often changes. High prices and scarcities provide signals for market entry in certain sectors. High food prices, for instance, will probably be a boon for GMF research (as well as for the agricultural developing world).

well, it's likely good policy, but it hasn't shown what kind of politics so far... the premliminary conclusion so far is bad. I don't know, maybe I'm being a bit hopeful, but putting it out there as a feeler might not necessarily be horrible politics. Perhaps the libs will actually listen to the excessive feedback so far and construct their policy accordingly.

H2H, as I read your comments, I think we're in closer agreement than one might suppose.

I'm saying a carbon tax would increase inflation and depress the economy, you're suggesting a carbon tax would put people out of work in such "carbon-intensive" industries as Taxi services and plumbing. (Not that plumbing is directly carbon-intensive, but when the cost of all goods goes up, that includes plumbing, and you correctly apply the economic theory to say that some plumbers will not be able to afford to continue, and will have to find other jobs.) In other words, a carbon tax is likely to generally depress the economy.

Again, though, as far as environmental benefits go, the numbers show that car sales have not plummeted in Canada, despite the rising cost of gasoline, confounding the theories espoused by the carbon tax proponents.

These are things the average Canadian will be concerned about at the ballot box. The Party that focused on these would form a majority. Since the Liberals are not prepared to do/say anything for the average Joe/Joan, a majority is not within their grasp.

If the Liberals go to the ballot box with a Carbon Tax as their central platform, Conservative majority assured. The Conservatives have the money to spin this issue twenty different ways. The Liberals can't even pay off Leadership debts 18 months old, so forget about being able to get their message out adequately.

Dion may be an honest guy. Dion may be able to connect one-on-one. But failure to pay off his leadership debt, even after 18 months, reveals a level of intelligence, or reveals a level of organization, or reveals a level of setting priorities (or all three) that I fear significantly lacking in someone who wishes to be prime minister.

The carbon tax proposal is more proof that Dion is a flaming red socialist, and not worthy of my support.It's a bad, bad, bad policy. Why? Because it is being suggested at a time when gas prices are soaring. Dion and his advisors are collective idiots.

I'm not about to debate the scientific merits of a carbon tax, but what I feel I can comment on is the idiotic strategy behind unveiling (or not unveiling) the plan.

What exactly IS the strategy here? I cannot for the life of me figure out why Dion and his merry band of socialists keep withholding this policy while the Conservatives, who have proven themselves quite capable of maligning their opponentns, continue to define the issue.

I don't know if I can accept that the leader of Canada's proudest political party and his advisors are that stupid.

If you're arguing "no carbon tax while prices go up", then you're arguing for no carbon tax ever. Which is an argument, certainly, but you'll need to be brave enough to actually make it.

(I know that means you'll be lumped in with those "cooling" idiots that don't know how carbon forcing works, but them's the breaks, I suppose.)

As for carbon taxes hurting the economy... well that depends, doesn't it? If Canada really is just about extracting resources as messily as possible and selling them to the highest bidder then yes, it would hurt the economy. Canada's emissions are so terrible partially because of the Oil Sands, after all.

If Canada is about more than that, though, then maybe a tax shift away from industries that are a bit more responsible, towards those belching carbon, might just be a good idea.

And as for the politics, well, there's worse things to do than run on a Big Idea that'll rip away the votes of Green party supporters, and make the NDP look like backwards, reactionary tools of Stephen Harper.

I think when you are talking about price elasticity of carbon/gas and food, you are forgetting one simple fact.

Given that demand for gas and food is relatively inelastic, if the price of gas goes up, and along with it the price of everything else, then people cut back in the areas where there is some elasticity.

If your total income stays the same (due to the marvel of revenue neutrality, then decisions on how to cut back are made on the basis of need and the amount of disposable income left after the necessities are paid for. You cannot cut back significantly on utilities, gas, food, so as a result, you don't replace your car so frequently, you don't buy new clothes so often, you give up going out to dinner as regularly, you stay home instead of taking vacations, you watch TV instead of going to a show, etc.etc.,etc. These are all examples of the unintended consequences of a carbon tax, but the effect on all sorts of industries would be enormous, and there would be a massive drop in our standard of living.

jad, I don't think all prices would necessarily rise. Take a good like prescription drugs. Prescription drugs are not very carbon-intensive to make, so the tax will not affect them, but the cuts in income and corporate taxes will. There you could easily see prices going down.

But it is poor people, and especially people who work in resource industries that will see some combination of higher prices (since food and other carbon-intensive things are a large part of their budget), more unemployment and lower incomes.

I beg to differ with those that call this a "socialist" scheme, however. Firstly, the most socialist approach to environmental problems would be to regulate lower emissions. This approach leaves the innovation largely up to the market.

Moreover, I ask, what is so free market about treating clean air (or stable temperatures) as a good of the commons? As good free marketeers you should believe that private property is a good thing. The problem with "goods" like clean air or stable global temperatures is that it is hard for any one person to own it. But then, that was historically true of most resources before governments created private property (and markets).

What you should be asking, is why some jerks should be allowed to dirty up my air, and screw around with my climate, since surely we each have at least some claim to it. The environment is a property rights issue - and a difficult one because of its non-conventional shape. Making businesses consider the carbon they use is not "socialist", however. It is a way that more closely simulates the result if carbon emissions were private property.

Even Milton Friedman argues that since the negative externalities from pollution affect so many people, it is more effective for governments to collect taxes on behalf of those negatively affected (ie. everybody).

My policy preference is for tradable emissions permits, and my political sense is that the time to implement such a policy would be during not a slowdown (+ recession in have-not Ontario... thanks a lot, Dalton).

And as for the politics, well, there's worse things to do than run on a Big Idea that'll rip away the votes of Green party supporters, and make the NDP look like backwards, reactionary tools of Stephen Harper.

While I don't disagree that big ideas can sometimes be a good electoral tool, I really can't think of too many that have worked well, historically. Ask John Tory and Joe Who.

Will Greens now move their vote to the Libs? Possibly, some will. Will the centre-right, unhappy with Harper, go back to the Libs? Not likely.

The big unknown is how the mushy-middle Liberal voters will react to the possibility of increased fuel/heating costs. It's a hard thing to defend during a campaign.

What concerns me most, is that this will ruin the entire concept of carbon taxes, if the election is a disaster for Dion.

1. Laurier's free trade policy lost him the 1911 election. But he was running in a two-party system, where the idea would sink or swim on its popularity.2. In 1974 wage and price controls were the main issue. The Tories lost (they supported it), because the NDP also supported the policy, while the Liberals were alone against it. 3. Brian Mulroney won in 1988 by using free trade to garner the plurality of its supporters, as the Liberals and NDP split the opponents. 4. Mike Harris ran a big ideas election in 1995, promising radical cutbacks and free market reforms (he actually promised more cuts than he delivered, because the economy did better than expected). He managed to come from behind and win a solid majority government.

The one constant I see is that you lose policy elections when your side of the issue is divided between multiple parties. I think it is still good politics for the Liberals to adopt a carbon tax, but in the long-term rather than the short-term. If the Liberals listen to Warren Kinsella in the long term they will become unelectable, as Second Cuppers outgrow Tim Hortons (think about what support for a carbon tax would be among people under 30).

Monday, May 26, 2008OTTAWA -- Canadians are warming up to the prospect of paying an environmental tax on activities that cause climate change, but they don't necessarily expect to get the money back in the form of income tax cuts, a new poll has revealed.The McAllister Opinion Research survey, commissioned for the Pembina Institute -- an environmental research group -- and obtained by Canwest News Service, revealed that Canadians would be supportive of a federal carbon tax and would like to see its new revenues invested in improving energy efficiency and clean energy technologies.When told that the government of British Columbia had recently introduced "a carbon tax on fossil fuels to reduce greenhouse gas emissions," 72 per cent of those surveyed in the poll said that this was a positive step versus 23 per cent who thought that it was a negative step. The poll surveyed 1,009 Canadian adults across the country between April 29 and May 9, 2008 and is considered accurate within 3.1 percentage points, 19 times out of 20.Jason Doud, a research analyst at McAllister, said he's not surprised at the results since his firm's recent polls have consistently revealed that Canadians are more concerned about the environment than other issues."The support for B.C.'s carbon tax is fairly uniform across Canada," he said. "Six out of 10 people definitely support it when you look at the numbers."The strongest support for a carbon tax appears to come from Quebec and the Atlantic provinces where 81 per cent and 77 per cent of respondents respectively said that the B.C. tax was a positive step.

However, when asked how revenues from a proposed federal carbon tax should be spent, most Canadians said they would prefer more green spending, rather than income tax cuts. Only 11 per cent of respondents said carbon tax revenues should be used to cut income taxes."I certainly think overall that [a carbon tax in a federal political platform] would bode well and at the very least Canadians are certainly receptive to the idea," said Doud. "What Canadians are going to want to see, is they're going to want to know that this tax is invested in the environment in some way."

h2h: Kinsella built his career on running elections against radical change and big ideas. Look at the people's fought against and won: Stockwell Day, who was running on a platform of social conservatism and direct democracy; and John Tory, who was running on the school funding issue.

Whereas if you take a look at the government he's best known for supporting, it was notorious for being politically competent but none-too-interested in any sort of "big ideas." (Or, some say, of any policy decisions at all.)

The one exception? Clarity.

The guy who wrote the Clarity Act? Dion.

No, Dion can't run like Chretien. He can't run as the canny policy-free administrator and political operator. For better or worse, that door is closed to him. He needs to run as something else, something we haven't seen in a long time: an idealistic, progressive Liberal.

That's probably why he bothers Layton so much; the NDP practically exists to be the voice of idealism, so what happens when a Liberal leader actually takes up that torch for a change?

And, yeah, I'm sure that does scare the hell out of Kinsella. It's not his game, and he doesn't know how to play it.

Jimtan - that's soooo yesterday's news. And this is what voters really think of green taxes once the rubber hits the proverbial road:

"Fuel protests herald grim times for European green policyDOUG SAUNDERS

From Wednesday's Globe and Mail

May 28, 2008 at 2:06 AM EDT

LONDON — After hundreds of angry drivers shut down highways in England Tuesday in protest against green automobile taxes, and drivers and fishermen in France and Spain paralyzed their ports and roads in a fuel-tax protest, politicians began to signal Europe's ambitious emission-control policies may soon have to be abandoned.

While Europe has led the way in using tax incentives to encourage people to buy low-emission cars and to build carbon-neutral houses in order to meet Kyoto targets, it has become increasingly apparent that inflation-battered voters are no longer willing to go along.

Political leaders in Britain and France are seeking the reversal of tax policies designed to make polluting vehicles more expensive, with French President Nicolas Sarkozy and some British ministers calling on their own governments and the European Union to relax ecologically friendly taxes in order to give relief to citizens suffering from fast-rising food and fuel prices.

As Prime Minister Stephen Harper launches a European tour Wednesday to persuade leaders that Canada's greenhouse-gas policies are acceptable, he may find the gaps between their views have narrowed..."

Dion will have tire tracks on his back if he goes ahead with this political folly.

"LONDON — After hundreds of angry drivers shut down highways in England Tuesday in protest against green automobile taxes, and drivers and fishermen in France and Spain paralyzed their ports and roads in a fuel-tax protest, politicians began to signal Europe's ambitious emission-control policies may soon have to be abandoned."

Dear Andrew,

My article is from May 26th?

Your article refers to Europe where the cost of fuel is very much higher than Canada. Do you have any idea how tax neutral they are?

"Tax neutral", "tax shifting", seriously Jimtan, we're all adults here - this is taxing people on heating their homes and when they travel from their homes. You may as well tax them on the air they breath. This is tax that no one can avoid - you're taxed for living in a modern society.

Heck, I'll probably mount a barricade like the europeans if it comes to pass.

"Tax neutral", "tax shifting", seriously Jimtan, we're all adults here - this is taxing people on heating their homes and when they travel from their homes. You may as well tax them on the air they breath.”

Dear Dear Andrew,

The idea of a usage tax is to penalize heavy users. Light users pay less and get equal benefits.

It’s the same as taxes on cigarettes. It’s a harmful addictive substance that can’t be banned outright. Those who smoke 5 packs a day can still do so if they can find the money. Those who smoke a cigarette a day pay little. Those who don’t smoke are best off.

I used to drive 18k km a year. I can still drive that mileage at $3 a liter. But, I don’t because I realize that my actions have bad consequences. Others suffer. I must do my part.

Mature people can see beyond their own wants. They can appreciate the needs of the community, and the long-term consequences of their action. You don’t need to be an adult to be mature.

I think that a Liberal initiative that emphasizes something more holistic would be a better sell than something that will be perceived as merely making gas more expensive. Having a plan to address the coming economic realities, which must include vastly increased funding for public transportation and rail, urban planning that emphasizes higher density and mixed use neighbourhoods, conversion to alternative energies, both on a macro and micro scale, and other incentives to balance any carbon taxes, additional gas and the end of highway subsidies (which may be phased in at the end of the plan cycle) is the way to go. Having a plan, setting benchmarks and a goal date would be key to selling the plan. People are seeing pain of rising gas prices and are looking for a way out.

But I fear that we are too myopic to make it happen until it is too late.